Wheat Prices Climb withRussian, European Crop Problems

The wheat market is responding to smaller crops in competing countries overseas,
and prices will continue to go up, market analysts say.

U.S. wheat prices are climbing due to weather problems in Russia, Europe and southern Asia, but market analysts expect the bump to be relatively small.

Soft white wheat prices this week increased to $6.09 to $6.15 per bushel on the Portland market, up from $5.80-$5.90 a month ago. Nearby futures traded in a range between $6.19 and 6.27 per bushel.

Hard red winter wheat ranged from $6.28 to $7.23 per bushel, up from $6.07 to $6.30 a month ago. Dark northern spring wheat sold for $6.85 to $7.59 per bushel, up from $6.66-$6.83 a month ago at Portland.

Mike Krueger, with MK Consulting in Salem, pointed to signs that poor growing weather in Europe, Russia, Ukraine, Kazakhstan and other some other export countries has been causing the crop to "shrivel" in recent months. Russia's production is forecast to be down as much as 21 percent compared to last year's record crop, and excess rain in the Black Sea region has damaged some of that wheat crop.

The losses are concentrated among major wheat exporters, Krueger said. The USDA will put out its latest wheat report Aug. 10.

Black Sea wheat prices have been going up, to about $234 per metric ton, or $6.37 per bushel, Krueger said.

"They're still cheaper than us to Egypt, but not nearly as much as they were," he said.

To make his projections, Krueger has been taking estimates made by Russia and other countries and reducing their exports to record-low carryovers, then comparing them to USDA projections to make his predictions.

"A very large quantity would have to be filled by the world's residual supplier, which is us," he said.

Wheat crops in the U.S., Canada and Australia are also smaller than anticipated.

Taking China out of the world wheat supply equation, Krueger says supplies are getting to be as tight as they were in 2006, 2007 and 2008, particularly for major exporters.

Reaching prices from that time is not likely, Krueger said. But will they go "way higher" than they are now? "Looks like the table's set," Krueger said.

Ten years ago, dark northern spring wheat hit $23 per bushel, soft white wheat peaked at about $14 per bushel and Chicago futures prices were about $10 per bushel.

"They were there maybe a month, and when they fell off; it was an epic collapse," said Dan Steiner, grain merchant for Morrow County Grain Growers in Boardman, Ore. "I don't expect it to come anywhere close to that."

Back then, world stocks were about 122 million metric tons. Today, the USDA estimates world stocks at about 260 million metric tons, Steiner said.

"We're not running out of wheat globally, but we are reducing supplies," said Darin Newsom, commodity market consultant in Omaha, Neb. "This is what the market has needed to see. It's a step in the right direction and the markets are certainly reacting to that."

In the last two weeks, grain speculators purchased more than 250 million bushels on the futures market in Chicago and 200 million bushels in Kansas City, Steiner said. But the rally isn't driven by demand, he said.

"We're not selling any more wheat," Steiner said. "Our sales have been rather pathetic, actually."

Wheat sales are about 115 million bushels behind last year's sales, he said.

The USDA projected being ahead on sales. Steiner said wheat sales need to increase by at least a third just to catch up with USDA projections.

The $6 per bushel price range for winter wheat is a "pretty tough ceiling," for the Chicago and Kansas City market, Newsom said. Soft red winter wheat is priced at $5.65 per bushel to $5.70 per bushel in Chicago.

"It's going to be hard to push it higher, but not impossible given the momentum we've got right now," he said. "We could push up a little past $6 this time around."

Newsom said farmers may want to sell any wheat they have on hand if they see nearby futures prices approaching $6 per bushel.

Krueger recommends farmers hang onto their wheat, or replace some of their sold wheat with call options on the Chicago market.

Steiner still expects soft white wheat prices to move higher after harvest and into the winter, especially if Australia's competing wheat crop continues to struggle.

"There's still plenty of room for this thing to go higher," he said. "It just depends how high speculators want to take it."